Key takeaways
- “China plus one” means adding a second country to a supply chain that still runs primarily through China, not replacing China outright.
- Vietnam, India, Malaysia and Thailand can absorb electronics assembly, but most of the components going into that assembly still come from China.
- What does not transfer is tooling, process knowledge and yield history, which are the parts that took years to accumulate.
- Moving assembly lowers US duty only if the work there changes the product’s legal country of origin, and a second factory is usually premature before the product has proven demand at its first.
Vietnam and India, along with Malaysia and Thailand, can absorb a growing share of final assembly for electronics and hardware products, but none of them has replaced the depth of China’s component supply chain or its accumulated tooling and process knowledge. What actually transfers when you move production is assembly labor and simple mechanical parts. What does not transfer nearly as easily is the supplier ecosystem for complex components, the tooling relationships built over years, and the yield history that tells a factory how to hit spec on the first run.
Why founders start looking past China
The move toward manufacturing diversification is now a mainstream strategy for large manufacturers, not a fringe hedge, though the pace and scope are still evolving.
- Bain & Company’s 2024 survey of 166 senior executives (90 percent at companies with more than USD 1 billion in revenue) found 81 percent planned to move supply chains closer to home or to their main markets, up from 63 percent in 2022.
- In the same survey, 69 percent reported moves to shift operations out of China, up from 55 percent in 2022.
- Only 2 percent reported having fully completed a reshoring or diversification plan, even at that scale of company. This is a multi-year process, not a single sourcing decision.
These figures describe large enterprises, and a small hardware company does not have the same balance sheet or negotiating leverage. The direction is still a useful signal: even the companies most equipped to absorb the cost and complexity of moving production are finding it slow.
Free checklist: the 30 checks to run before you pay the factory deposit →What “China plus one” means in practice
“China plus one” describes adding a second country to a supply chain that still runs primarily through China, rather than replacing China outright. Even Chinese manufacturers are doing this: Chinese firms invested roughly USD 24 billion into ASEAN manufacturing in 2023, about a third of China’s total outbound foreign direct investment that year, according to McKinsey’s analysis of the trend. For a small hardware company, the practical version of this strategy is narrower: identify which specific parts of your build (final assembly, a subassembly, a mechanical component) could plausibly move, and treat the rest of the supply chain as still anchored where it already works. That is a different exercise from choosing between manufacturing in the USA or nearshoring to Mexico, which trade Asian supply chain depth for proximity rather than for a second Asian source.
How the main alternatives to China compare
Each alternative suits a different part of the build, and none replaces China’s component depth on its own. Tariff rates below are the US Section 301 rates in force as of November 2026, explained in the tariff section further down.
| Country | Best suited to | US Section 301 rate | Main limitation |
|---|---|---|---|
| Vietnam | Final assembly of consumer electronics, phones and PCB assemblies | 12.5% | Many components still shipped in from China; power supply strain in the dry season |
| India | Phone and electronics assembly, simpler electro-mechanical parts, selling into India itself | 10% | Advanced components still largely imported |
| Malaysia | Semiconductor assembly and test, established contract electronics manufacturing | 10% | Thinner supply base for finished consumer goods with complex plastics |
| Thailand | Automotive electronics, hard drives, a growing PCB fabrication base | 12.5% | Consumer electronics supply chain smaller than Vietnam’s |
| Mexico | Products for the North American market, shipped by road | 10%, with listed exemptions | Most electronic components still arrive from Asia |
| Taiwan | High-reliability electronics and semiconductors | 10% or 12.5% on certain products | Higher cost, geared to complex and high-value work |
Mexico trades Asian supply chain depth for proximity, as noted above, rather than offering a second Asian source. The rest of this article focuses on the two most common choices for a second Asian factory, Vietnam and India.
Vietnam: strengths and current limits
Assembly capability versus component supply
Vietnam has become a serious assembly location for electronics, but the components going into what it assembles frequently still originate in China.
| What the data shows | Source |
|---|---|
| 67 percent of global PCB exports originate in China | Altana supply-chain analysis, 2025 |
| Vietnam sent more than 7,000 PCB shipments to the US in 2024, worth about USD 78 million, and roughly 20 percent of those shipments still included upstream Chinese sub-components (ICs, transformers, diodes, capacitors) | Altana supply-chain analysis, 2025 |
| China still produces well over 70 percent of the world’s iPhones, attributed to two decades of supply chain depth, component suppliers, tooling expertise, and a trained engineering workforce | TechWireAsia, March 2026, citing industry reporting |
Vietnam’s assembly role is real and growing for specific product categories. It is not yet evidence that the underlying component ecosystem has moved with it. Our own look at manufacturing in China covers the case for staying with a single, deep supply base rather than splitting across countries.
India: strengths and current limits
Domestic market access as part of the argument
India’s own push into electronics component manufacturing shows a similar pattern: fast growth in assembly and simpler parts, with the more complex components still imported.
- Under India’s Electronics Component Manufacturing Scheme, 106 projects had been approved by August 2026, with about ₹69,000 crore of committed investment against a target of about ₹59,000 crore. The latest tranche alone, 31 projects approved on 17 August 2026, is expected to produce about ₹82,000 crore of components and create over 9,500 jobs.
- What is localizing well: electro-mechanical parts, enclosures, wire harnesses, sensors, coils, speakers, and standard PCBs.
- What India still imports: advanced semiconductors, sensors, rare-earth materials, specialty chemicals and laminates, high-density-interconnect PCBs, SMT-grade passive components, and display components.
- Domestic value addition in Indian mobile phone manufacturing has reached about 22 to 23 percent, against a government target of 35 to 40 percent, according to India’s electronics secretary in August 2026. Much of the visible growth is still assembly value rather than component value.
- Indian component makers face higher input tariffs, capital costs and logistics costs than established clusters in Vietnam and Malaysia, which keeps many complex parts imported for now.
India’s large domestic consumer market is a genuine strategic argument for building capacity there, since it reduces dependence on any single export destination, though the sources available do not put a specific figure on how much that access is worth to a foreign hardware brand deciding where to manufacture.
Tariffs and country of origin after the 2026 changes
Moving production lowers your US duty only if the product’s legal country of origin changes, and the rates themselves moved repeatedly during 2026. As of November 2026:
- The broad 2025 tariffs are gone. The Supreme Court ruled in February 2026 that the International Emergency Economic Powers Act does not authorize tariffs, and collection stopped on 24 February. Widely reported figures such as a 20 percent Vietnam rate and a 40 percent transshipment penalty came from that regime and from a trade framework that has not been finalized.
- New Section 301 duties apply. Since 24 July 2026, USTR’s forced-labor Section 301 action has applied 12.5 percent to products of China, Vietnam and Thailand and 10 percent to products of India, Malaysia and Mexico. Product exemptions are listed in the notice’s annexes, so check whether your HTS code is among them.
- China still carries its older duties. The 2018 and 2019 Section 301 tariffs on Chinese goods remain in place on top of the new rate.
- More is pending. Further Section 301 investigations covering several of these countries, including one into Vietnam, were open at the time of writing, and the US trade arrangements with Vietnam and India had not been finalized.
Origin, not the shipping port, decides which rate applies. US Customs treats work done in a second country as changing a product’s origin only when it substantially transforms the product. For electronics, building and programming a circuit board from components is the kind of work that can qualify, while putting a finished Chinese assembly into a box generally does not. Routing goods through a second country to claim its lower rate without that transformation is transshipment, and it exposes the importer to back duties and penalties.
Each origin case is decided on its facts. Get a written view from a customs broker, or a binding ruling from CBP, before you price a product on a new country’s rate.
The mechanics, including HTS classification, landed cost and duty drawback, are covered in how tariffs affect manufacturing costs.
What does not transfer when you move production
Tooling, process knowledge, and yield history
Assembly is a comparatively small share of a product’s total value, which is exactly why it moves faster than everything underneath it. A 2019 study of the iPhone X by economist Yuqing Xing put Apple’s assembly fee at about USD 4.50, a small fraction of the unit’s value, while Chinese firms supplied about USD 104 of assembly and parts, roughly a quarter of its manufacturing cost. For the iPhone 3G in 2009, China’s entire contribution had been the USD 6.50 assembly fee. The advantage China holds is concentrated in components and process depth, not in the act of assembly itself.
In our experience at Inventornest, offshore manufacturing is not simply about finding the lowest unit price. Components can perform differently in the actual application than what their suppliers claim on a datasheet, and selection has to be followed by practical testing regardless of which country the factory sits in. A new country does not remove that step. If anything, it adds a variable, since the new factory has not yet accumulated its own history with your specific parts.
- What tends to move: final assembly, simple mechanical parts, enclosures, cable and wire harness work.
- What tends to stay behind: deep semiconductor and display supply chains, high-density PCB fabrication, and the tooling relationships and yield curves a factory has already worked out for a specific design.
The realistic cost and time of a transfer
A supply chain transfer takes longer and costs more than a location comparison suggests on paper. Tooling is the first line. A mold can often be shipped to a new factory, but it still has to be requalified on that factory’s machines, and what a replacement would cost depends on cavity count, steel and complexity, set out in injection mold tooling cost. Component supply adds to the calendar: in our experience at Inventornest, component procurement is a major source of schedule pressure. Even large companies with dedicated supply chain teams find the whole process slow, which is why only 2 percent in the Bain survey above had completed a diversification plan.
In our experience at Inventornest, our own sourcing rule is to avoid relying on components available from only one vendor wherever practical, and to check availability through multiple suppliers. That discipline reduces the risk a country move is trying to solve in the first place, independent of which country the factory is in.
How to move production to a new country, step by step
A transfer goes best when it is run as a controlled requalification rather than a switch-over. The order below keeps the old supply running until the new one has proved itself.
- Decide what moves. Final assembly, one subassembly or one mechanical part, rather than the whole bill of materials at once.
- Price the new route as landed cost. Unit price plus freight, duty on the new origin and the cost of components still shipped in from China.
- Prepare a transfer package. Drawings and CAD, the bill of materials with approved sources, firmware releases and programming instructions, assembly instructions, functional test procedures and acceptance criteria, and an approved golden sample.
- Vet and visit candidate factories. What the relationship needs once it starts is covered in working with overseas suppliers.
- Settle the tooling. Move it, copy it or rebuild it, and confirm in writing who owns the tooling before anything ships.
- Run a pilot build before volume. Inspect the first articles against the golden sample and your acceptance criteria, then compare yield with the original factory.
- Keep the first factory running until the new one has delivered repeatable yield across more than one run.
At Inventornest, we clarify questions with the factory, review initial samples and address discrepancies before scaling production. A new country does not change that step, and each product still requires its own manufacturing checks.
Finding an OEM partner outside China
In Asian sourcing, “OEM” usually means the factory that builds your design to your documentation, not the brand that sells it, which is the opposite of how US procurement uses the word (see what an OEM is). An OEM alternative to China is therefore a factory in Vietnam, India, Malaysia or Thailand that builds to your drawings, bill of materials and test procedures, rather than selling you its own design.
- Confirm it builds to print. A factory offering its own catalog designs is acting as an ODM, which changes who owns the design. The difference is set out in OEM vs ODM.
- Ask where its components come from. Many Vietnamese and Indian assemblers still buy most parts from China, which affects both lead time and country of origin.
- Check it has built something similar. Ask for examples at your product’s complexity and volume, not only its largest customers.
- Verify it is the factory. Trading companies present themselves as OEMs in every country, and vetting a factory before you sign covers how to tell them apart.
When a second country is premature for a small product
A second qualified factory in a second country is a meaningful fixed cost: new tooling or tooling requalification, a new set of quality checks, and a new relationship with no yield history behind it. For a single product at low volume, that cost rarely pays for itself before the product has proven demand at its first factory. A second country tends to make sense once volume is large enough that a supply disruption at one factory would be genuinely damaging, not as a first move before the product has shipped at all.
Frequently asked questions
Should a small hardware startup diversify manufacturing away from China?
Usually not before the product has proven demand at its first factory. A second qualified supplier is a real fixed cost, and for a low-volume product it is often premature until a China-only supply chain has become a demonstrated risk rather than a theoretical one.
Is Vietnam a good alternative to China for electronics manufacturing?
Vietnam is a strong and growing option for final assembly and simpler electronics work. Its component supply chain for more complex parts still runs substantially through China, so moving assembly there does not remove China from the picture entirely.
What does India offer for hardware manufacturing right now?
India is scaling assembly and simpler electro-mechanical component manufacturing quickly, supported by government incentive programs, along with the strategic benefit of a large domestic market. Advanced semiconductors, sensors, and display components are still largely imported.
Is Vietnam cheaper than China after tariffs?
On duty alone the gap is small as of November 2026: both face the 12.5 percent forced-labor Section 301 rate, while Chinese goods also carry the older Section 301 tariffs. Labor is usually cheaper in Vietnam, but components shipped in from China, freight and a new factory’s learning curve narrow the difference. Compare landed cost per unit for your own product rather than headline rates.
What counts as transshipment?
Transshipment is routing goods made in one country through another to claim the second country’s lower tariff, when the work done there does not substantially transform the product. Customs can assess the correct duty plus penalties, so an origin claim needs records: a bill of materials showing where each part came from and a description of the work done in each country.
How does this compare to the offshore versus domestic manufacturing decision?
A choice between Vietnam, India, and China is a decision within offshore manufacturing. It does not resolve the separate question of offshore versus domestic production, which involves different cost, IP, and lead-time tradeoffs covered in our manufacturing location decision guide.
Where Inventornest fits
Wherever your production ends up, in China, Vietnam, India, or split across more than one, our approach to component selection stays the same: avoid single-vendor dependency where practical, and verify parts through testing rather than a supplier’s datasheet alone. If you are weighing where to manufacture a new hardware product, our product manufacturing team can help you think through the tradeoffs before you commit. Get a quote to talk through your specific product.
